Central bank spending is like ‘heroin’ for households, says Jamie Dimon

The chief executive of the world’s largest bank has compared a $9 trillion wave of cash unleashed during the pandemic to heroin, as he suggested the US economy is addicted to debt.

Jamie Dimon, chief executive of JP Morgan, warned the world was now facing a “dangerous cocktail” of risks that could prove “explosive” for the global economy.

While Mr Dimon described the world’s biggest economy as at the forefront of innovation, he added: “we’re now spending a lot of money”.

Referring to the trillions of dollars in stimulus cheques handed to Americans during lockdown and $4 trillion printed by the US Federal Reserve to buy bonds, he said: “That money is like heroin. 

“And of course when you put $5 trillion in the hands of consumers … think of those as drugs in the system …Well, of course you’d feel pretty good. Of course stock markets are high and of course companies are earning more money.”

Mr Dimon, who recently warned of the “most dangerous time the world has seen in decades”, suggested companies could see big drops in profit as the economy returned to a world that was not supported by government handouts or cheap cash.

Mr Dimon also warned that Israel’s war with Hamas and the ongoing conflict in Ukraine added to a plethora of risks facing a more fragile global economy.

“You can’t sit here and say that something bad may not happen. I’m not trying to scare people, I’m more in the category that something could go wrong,” he told the Global Investment Summit organised by Rishi Sunak in London.

He warned that inflation was likely to remain higher for longer, partly driven by a move towards net zero and higher government spending.

“We’re on this sugar high and I’m not saying this ends in a depression [but] I think there’s more inflationary forces out there.

“There’s a higher chance that rates go higher, inflation doesn’t go away and all these things cause more problems of some sort.”

Despite the pessimism, Mr Dimon praised the UK economy for its innovation, entrepreneurialism and “pro-growth” policies that he said he would “take notes and send them back to the American administration”, adding the “happy talk” about the US economy had to be taken in the context of massive government spending.

However, in comments that threatened overshadow the Prime Minister’s promises to the summit that he would “fix” Britain’s problems with tax cuts, Andrew Bailey, Governor of the Bank of England, raised concerns over the UK’s future prospects.

In an interview with The Chronicle in Newcastle, Mr Bailey said: “If you look at what I call the potential growth rates of the economy, there’s no doubt it’s lower than it has been in much of my working life.”

Sunak warned that the outlook for the global economy was “more uncertain and more challenging than any time in recent history” as he admitted that the UK’s growth rate was too low.

“We want it to be higher,” he told an audience of bankers and investors, including Mr Bailey, at Hampton Court Palace in London.

The Prime Minister said a “large chunk” of the productivity gap between the UK and faster-growing G7 economies like the US could be explained by “lower business investment that’s characterised the UK economy for decades”.

Mr Sunak insisted he was “taking steps to fix that”, highlighting last week’s move to make a flagship business tax break permanent.

“Make no mistake, we are cutting taxes,” he said in an opening address.

With a general election looming and Tory infighting over immigration providing the backdrop to the summit, it also emerged that Labour had hosted a breakfast on the morning of the event attended by almost three dozen business leaders, including several British chief executives.

Stephen Schwarzman, the boss of private equity giant Blackstone, praised the UK’s “pro-business” stance, adding that the company was examining opportunities in data centres and student housing across Europe, as he described the UK as one of the few places where growth was “holding up”, despite uncertainty.

He also blasted US president Joe Biden’s debt-fuelled Inflation Reduction Act (IRA) – which is offering hundreds of billions in subsidies for green investment in the world’s biggest economy.

Mr Schwarzman said: “We’re currently running deficits of $2 trillion (£1.6 trillion) a year. I’m not sure that’s a model that everyone would run out and duplicate.

“I don’t know if I would recommend that to the UK.”

Analysts at S&P Global warned that the UK faces another year of “stagflation” as high interest rates, designed to bring inflation under control, hold back growth.

So far, inflation has fallen from a peak of 11.1pc in October 2022 to 4.6pc last month, when a drop in the energy price cap pulled the headline rate down from September’s 6.7pc.

Financial markets are betting that the first rate cut, to 5pc, will come in the summer of 2024.